Interest rate rise further tarnishes Liberal promise

Todays interest rate rise, the ninth in little more than five years and the fifth since the last election, came as no surprise to anyone reading the market forecasts.

Transcript

plusminus

KERRY O'BRIEN: Welcome to the program and today's interest rate rise, the ninth in little more than five years, and the fifth since the last election, came as no surprise to anyone reading the market forecasts. The Prime Minister and Treasurer have had plenty of warning to prepare the ground for this clear political setback, but it didn't make their response any easier, given the last election campaign when Liberal Party ads promised to maintain record low interest rates.

In a moment I'll be talking with Peter Costello about that promise, but first this report from Political Editor Michael Brissenden.

MARKET ANALYST 1: 25.

MARKET ANALYST 2: Rates have gone up a quarter of a per cent.

MICHAEL BRISSENDEN: For the screen jockeys at the big money end of town, this was hardly a surprise. Like a healthy end of year bonus, it was a widely anticipated fiscal outcome. Did it move the markets? Not much.

MARKET ANALYST 3: Monetary policy at...

MICHAEL BRISSENDEN: Here in Canberra, there was similar anticipation. This was the rise everyone expected. But did it move politics? You bet it did. You know it's big when we get duelling double-headed leadership press conferences.

KEVIN RUDD, OPPOSITION LEADER: Well, today's interest rate rise is a worrying development for Australia's working families. Working families are already struggling to make ends meet, particularly when you take into account nine interest rate rises on the run, the increased cost of petrol, the increased cost of groceries, as well as the increasing cost of childcare. And of course, today's interest rate rise makes that challenge even tougher.

JOHN HOWARD, PRIME MINISTER: I am aware and the Government is aware that this decision will hurt some homebuyers and we're very conscious of that. And it will have an impact on some household budgets. What this decision by the Reserve Bank does is to place economic management once again front and centre in the political and social debate in this country.

MICHAEL BRISSENDEN: Which does make you wonder where it's been if it hasn't been front and centre for the past three years. Still, interest rates and economic management do come into even greater focus when we get to the pointy end of the electoral cycle. In fact, as we all know, they became the central focus of the 2004 campaign. This was in the Prime Minister's words, a matter of trust.

JOHN HOWARD (August 2004): Who do you trust to keep the economy strong and protect family living standards? Who do you trust to keep interest rates low?

MICHAEL BRISSENDEN: Every rise since has been painted by the Labor Party as a betrayal of this trust. And even the Liberal Party's own pollsters have picked up that in the highly-geared mortgage belt seats on the outskirts of our major cities, those mortgagees, the so-called "Howard battlers" are the ones now switching their votes.

REBECCA HO, MORTGAGEE: Every month, every cent counts. Our mortgage is thousands of dollars every month, and since it started it has gone up hundreds.

MICHAEL BRISSENDEN: Julian and Rebecca Ho are fairly typical. They have a $360,000 mortgage in Western Sydney. These are the politicians' identikit swinging voters. Big mortgage, kids, childcare. All the pressures of modern living. The prime target for ads like these that were so effective in the last campaign.

(excerpt from 2004 Liberal Party Advertisement)

ACTOR: Inflation has been halved and interest rates have been reduced to their lowest in over 30 years. But as we all know, it is only by building an even stronger economy, by keeping inflation under control, by keeping interest rates low.

(end excerpt)

MICHAEL BRISSENDEN: The script says keeping interest rates low. The text says keeping "interest rates at record lows". Nearly three years on, this has become an important distinction. We'll come to that in a moment.

Political campaigns are about selling the message and achievements and building impressions. Interest rates were at the heart of the atmospherics of the 2004 campaign. They will be at the heart of this one too.

REBECCA HO: There was no more rises, wasn't it? I definitely won't be voting for Howard.

MICHAEL BRISSENDEN: The Ho's might think it, but John Howard never said rates wouldn't rise. His public statements were consistent. They would always be lower under a Coalition Government than under Labor. But his ads, as we've seen, promised to keep them at record lows. Every rate rise since has delivered a political opportunity for the Opposition, one that's become more powerful with every movement upwards. And as we saw today in the 2007 campaign, Labor will be homing in on interest rates hard.

KEVIN RUDD: Prime Minister, did the Liberal Party or did it not, run this advertisement during the Party's 2004 election campaign, and does this advertisement say that the Liberal Party, if returned to office, would keep interest rates at record lows?

JOHN HOWARD: Mr Speaker, the Liberal Party ran many advertisements and I remind you, I remind the leader of the Opposition of what I have said in the House before - and he can scour every transcript, and I'll make them available Mr Speaker, every transcript of every interview that I gave during that election campaign - and he will find no such commitment.

MICHAEL BRISSENDEN: But it seems the voters aren't the only ones who came away from that campaign with a different impression. Kerry Bartlett is the Liberal member for the New South Wales seat of Macquarie, an outer-suburban mortgage belt seat if ever there was one.

KERRY BARTLETT, GOVERNMENT WHIP: The promise that we would keep interest rates at record lows, still stands.

MICHAEL BRISSENDEN: There is an argument that rate rises will feed into the economic uncertainty felt by voters, and they in turn will want to stick with the team they know. The Government will certainly till that ground, and sow the seeds of concern about the impact of Labor's broader alternatives.

PETER COSTELLO, TREASURER: Nothing could be worse than to go back to the old industrial relations system which would pass on the income from this terms of trade boost right throughout the Australian economy, set off inflation and bring about the inevitable punitive interest rate correction. That is the risk of Labor.

WAYNE SWAN, SHADOW TREASURER: Four interest rate rises since WorkChoices was introduced, four, four interest rate rises since WorkChoices was introduced. So, what's that make of the Treasurer's claims?

MICHAEL BRISSENDEN: But in anticipation of this latest rise, the Government has argued that one of the significant factors putting pressure on interest rates is state debt. This wasn't mentioned by the RBA (Reserve Bank of Australia) in its statement supporting today's rise, but it was still part of the political argument.

JOHN HOWARD: He doesn't name state borrowings, but does anybody here argue that if we out in the markets now in deficit, borrowing to finance that deficit, that that wouldn't be exerting upward pressure on interest rates?

MICHAEL BRISSENDEN: Well yes, some do actually.

SAUL ESLAKE, CHIEF ECONOMIST, ANZ BANK: If you think back to the early 1990s for example when the Keating Government was running up most of the $96-billion of Labor debt that the Government now refers to, the cash rate fell from 17.5 per cent in 1990 to a then-record low of 4.75 per cent in 1993.

MICHAEL BRISSENDEN: But the real reasons behind interest rate rises are complex. There are inflationary pressures. Some parts of the country are booming, some aren't. Economists point to the tax cuts, there are labour shortages, there's government spending, and with an election coming we'll see plenty more of that. The global economy has an impact as well. In fact, the Reserve Bank board noted that a stronger economy was part of the problem. Despite these complexities, the politicians are all scrambling to push a simplistic message to the voters. But the polls, including the Liberal Party's own polls, suggest that this time, trust will be harder to find.